The Real Estate Insights
Gustavo Favaron
CEO & Managing Partner at GRI Club + Co-Founder at 8 Capital Group. A natural-born entrepreneur on a mission to create workplaces where people can be the best version of themselves.
Welcome back to "The Real Estate Insights," my monthly newsletter with insights, trends, and global real estate market news. In this edition, we're embarking on a journey to a general overview of the real estate scene in Germany and the UK; we’ll talk about Europe’s most prominent property deal since 2022 and the retail comeback; we’ll catch a glimpse of India's burgeoning investment landscape, and explore Mexico's green nearshoring endeavors.
The challenges facing Germany
In April, during a GRI Club’s gathering of leaders in the German RE market, I felt pressure to ensure the country remains a key player in the European market amid the €90 billion funding gap weighing on German banks.
German banks should expect a “stormy development” in NPLs, according to PwC, because of the high lending exposure to the US office market and the regulatory pressures from both the EU and Germany.
Rita Marie Roland, the partner for real estate at PwC Germany, said: “Falling property values are significantly increasing the risks of existing property financing. Many lenders are still waiting to avoid having to realize losses in value,” but a “wait-and-see” strategy will not be sufficient in the long-term. Her words were about the volume of NPLs in CRE increased by 56% in Germany in 2023.
Confidence and caution at the same time
German financial watchdog BaFin, on the other hand, expresses confidence in German banks, explaining they have been encouraged to increase provisions for real estate for several years. Although a few banks may have taken too much risk in CRE, the industry and the financial system are strong enough to endure the upheaval.
We all agreed and discussed that Germany’s stability and market potential are undeniable, even in uncertain times. Leveraging the current environment to invest in high-quality locations can bring long-term benefits.
Therefore, we cannot underestimate the fact that investors weigh short-term gains against long-term stability when deciding between high returns abroad or stable returns in Germany.
Meanwhile in the UK
The UK housing market has shown resilience, with consecutive monthly demand surges and stabilized prices reported by the Royal Institution of Chartered Surveyors (RICS). However, UK house prices fell by 1% in March, diverging from economists' expectations, amidst challenges posed by rising borrowing costs.
The London housing market is rebounding, evidenced by a quarter of homes selling above their asking price in the first quarter of 2024, suggesting growing confidence in the market's recovery.
UK lenders increase mortgage supply
In parallel, UK lenders are increasing mortgage supply at the fastest pace since 2021, coinciding with heightened buyer interest and a surge in mortgage approvals. Therefore, concerns persist regarding rising mortgage rates and potential dampening effects on the market's recovery.
Amidst this backdrop, Big Society Capital and other financial institutions have urged the UK government to facilitate private investment in social housing to address poverty and bolster affordable housing, proposing measures to unlock £50bn in funds.
Europe’s biggest property deal since 2022
Milan’s retail sector hit the headlines as Europe’s largest property deal since March 2022 took place, with Blackstone pocketing €1.3 billion from the sale of Via Monte Napoleone 8 to luxury goods giant Kering.
Blackstone bought the property in 2021 as part of a wider acquisition of 14 assets, including two office properties, nine residential assets, a luxury hotel, and a historical gallery. The acquisition cost Blackstone €1.1 billion.
Kering - owners of Gucci and Yves Saint Laurent, among many other luxury brands - alongside its rival LVMH, were responsible for Europe’s three of the five biggest property sales in 2023.
Head of European Real Estate at Blackstone, James Seppala, said the deal “demonstrates exceptional investor demand for high-quality real estate in the strongest markets.”
Is there a retail renaissance?
Signs of a retail renaissance in the US and Europe have been turning investors heads in the past year. Europe shows mixed signs, but sentiment is certainly positive, with an inflation slowdown set to boost consumer confidence and domestic consumption across the continent.
Kevin McCrain, Chief Executive of Brookfield Properties’ US retail division, claimed, “The narrative that retail was dying because everyone was moving to online shopping - it was just never true.”
The e-commerce boom and the pandemic are the well-known culprits for retail’s recent downturn. However, as the pandemic’s legacy dies out, and both the economy and society show fewer post-pandemic symptoms, perhaps it is “time for retail to shine again.”
Some of the signs that are pointing towards this retail renaissance include the working-from-home movement creating more shopping opportunities for suburban consumers, as well as data indicating a healthy increase in online sales when retailers open new physical stores.
However, as is the trend across the real estate industry of late, quality is key. When it comes to retail, this is particularly the case regarding location.
India's Potential Grabs Global Attention
The latest Investment Snapshot report by Colliers indicates that the first quarter of 2024 has commenced on a stable note, showcasing a promising start with USD 1.0 billion in investments.
Notably, foreign inflows constitute 55% of total investments, with the Asia-Pacific region dominating by contributing over 82%. Domestic investors also show strength, injecting approximately USD 400 million, marking a 15% increase from last year.
In line with this positive momentum in the investment landscape, significant developments are unfolding in India's real estate sector, signaling robust growth and heightened interest.
India's Real Estate Sector Gains Momentum: Major Investments and the Rise of REITs
Notably, Indiabulls Real Estate's announcement to raise ₹3,911 crore from a consortium led by Blackstone Group and Embassy Group underscores the sector's allure.
Blackstone Group's active participation in the Indian market was further highlighted by its plan to invest USD 2 billion annually in the country. However, the firm has also expressed the need for expedited regulatory clearances to facilitate smoother processes.
The surge in fundraising activities for REITs and InvITs, reaching ₹17,116 crores in FY24, emphasizes the growing investor confidence in real estate assets and the attractiveness of these investment vehicles.
Additionally, the impending listing of the first small and medium REITs within the next six months, as expected by NAREDCO, promises to energize India’s real estate landscape further.
Upcoming GRI gatherings in Europe and India
GRI Club is proud to announce our upcoming initiatives aimed at promoting investment opportunities in India through our high-level events worldwide. This strategic endeavor aims to equip global investors with essential insights and foster interest in exploring India’s exciting real estate market.
Here's an overview of some events specially designed for foreign investment proposals:
New York, USA | May 14-16th
Learn more: https://bit.ly/49uT58D
London, UK | June 26th
Learn more: https://bit.ly/3JaaVmK
Paris, France | September 10-11th
Learn more: https://bit.ly/3TQdWxp
Riyadh, Saudi Arabia | December 3rd
Learn more: https://bit.ly/4aZPtg3
Hotels Capitalize on Tourism Boom in Mexico and the Caribbean
CBRE has published an exclusive report projecting the global hotel market in 2024.
In Mexico, the Ministry of Tourism estimates that the arrival of foreign tourists could increase by up to 5.4% this year, while spending is expected to grow by 0.3% compared to 2023.
Beach destinations such as the Riviera Maya, Los Cabos, and Cancun are expected to have hotel occupancy above average in 2024, driven by new projects and the completion of planned new rooms. It's worth mentioning that the hotel sector was already experiencing growth. From January to November 2023, more than 37.5 million tourists arrived in the country - a 10.3% increase compared to the same period in 2022.
The Caribbean was another region analyzed by CBRE. It's observed that the region has a limited supply of hotels and an increase in tourism from Americans. This is the case for Aruba and Jamaica, two destinations where American tourists are the majority, with an increase of more than 10% in 2023; Puerto Rico and Punta Cana, on the other hand, recorded increases of 18.3% and 13.4%, respectively.
📅 | We remind you that CBRE, through the presence of its Global Chief Economist, Richard Barkham, will be present in the opening session of the eighth edition of Latin America GRI Real Estate 2024. More information.
I hope you enjoyed this edition, and, as usual, I’m looking forward to reading your comments and discussing more about these topics.